Entrepreneurs are characterized by using the resources they have to develop an idea and turn it into a business. Entrepreneurs pursue a dream; while some seek to solve a market need, others seek to create social impact and improve communities. Entrepreneurship contributes to reducing poverty in a country by creating jobs and generating income, thereby raising the socioeconomic level and well-being of citizens, particularly of its main actors: entrepreneurs. To succeed as an entrepreneur, It is relevant to understand how to build a brand, monetize products or services, and most importantly: how to make startup businesses grow and get funds. Currently, women entrepreneurs struggle to access capital without going into debt. Still, it doesn’t have to be this way as there are different ways to access funding through investors, which we will briefly discuss below.
There are different types of funding routes to build a company, and one of them is bootstrapping, meaning no funds are raised, and the only source of money comes from the founders and customers. In these cases, founders get to keep the shares and profits if successful, but they also assume all the risk if they fail. Of course, this option is impossible for everyone because the initial investment needed to scale up a business can be quite high. Therefore some entrepreneurs go into a partnership with another entity to grow its activity and delegate part of the operation to another company in exchange for a revenue share. This is an excellent opportunity to access new markets.
A significant term to mention is ‘Venture Capital Funds,’ described as “a mutual fund managed by professional investment managers. Fund investors are mostly pension funds and institutional investors” (Morrissette,2007. p52). The ability to form a business network is imperative to female entrepreneurs for setting ventures. It concedes them to approach peers individuals and improve their skills and competencies to establish opportunities that help them grow their business ventures. This is important to mention as men manage most venture capital funds, so women tend to have more difficulties accessing this capital.
An investment fund is a Collective Investment Institution made up of a group of participants, either individuals or companies, who invest part of their capital in an investment vehicle (shares, fixed income securities, etc.), operated by a managing entity, to obtain an economic return, maintaining the security and liquidity of its capital. The growth of private capital funds worldwide during the last years has been remarkable, reaching an annualized rate higher than that registered by any other financial product. The investments of these financial agents have the potential to represent a determining impulse for economic development. According to recent studies, its participation in very diverse companies’ capital produces positive effects in terms of job creation, sales, results, investment in assets, and tax collection, among others.
The typical private funds capital seeks to invest in projects that meet clearly identified attributes, such as the profitability of the project, its maturity period, and the economic sector where it is proposed to invest. One of the dimensions that receive the most attention from the perspective of the analysis and selection of projects carried out by the private funds capital is the Entrepreneur’s Profile. In most of the research on the topic of entrepreneurship, the attention given to entrepreneurs’ characteristics stands out. Specifically, they are interested in their commitment, dynamism, experience, and leadership, recognized as defense mechanisms against the adversity of the environment at the time of funding, managing their business, and internationalizing.
Another relevant concept to look into is the term ‘Angel Investors’, this definition of business angels describes “wealthy individuals who provide capital for start-up companies. Also known as, private investors, this term emphasizes the non-public and idiosyncratic nature of this capital market.” (Morrissette, 2007. P52). Morrissette also points out a profile of ‘Angel Investors’, describing that a “consensus paints angel investors as well educated, middle-aged men with significant business experience and substantial net worth.” (Morrissette, 2007. P53). Sudek (2006) analyzed the priorities of the “Angel Investors” during their selection of entrepreneurial projects and found that they pay special attention to the entrepreneur’s technical and administrative team’s characteristics. Other studies show that the entrepreneur’s commitment, experience, and track record are equally important investment funds.
We can assume that there is an unconscious bias based on the fact that people tend to look for a similar profile while building a network between investors and entrepreneurs. Women-owned businesses do not have equal access to angel capital. This could jeopardize female entrepreneurs’ situation, as they might lack the knowledge and experience to pitch in front of angel investors. Many women still ignore how the investment process works, and the fewer presence of women as business angels could explain the difficulty women face when financing their business projects. This reminds us of the importance of supporting and educating female entrepreneurs when raising funds, creating better opportunities for women to access funding.
Text by: DANIELA PATERNINA